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Unemployment and environmental regulation in general equilibrium

Marc Hafstead and Roberton Williams ()

Journal of Public Economics, 2018, vol. 160, issue C, 50-65

Abstract: This paper analyzes the effects of environmental policy on employment (and unemployment) using a new general-equilibrium two-sector search model. We find that imposing a pollution tax causes substantial reductions in employment in the regulated (polluting) industry, but this is offset by increased employment in the unregulated (nonpolluting) sector. As a result, while the policy causes a substantial shift in employment between industries, the net effect on overall employment (and unemployment) is small, even in the short run. An environmental performance standard causes a substantially smaller sectoral shift in employment than the emissions tax, with roughly similar net effects. Thus, policymakers who want to minimize sectoral shifts in employment might prefer performance standards over environmental taxes.

Keywords: Unemployment; Environmental regulation; Emissions pricing; Climate; Environmental tax; Intensity standard (search for similar items in EconPapers)
JEL-codes: Q58 Q52 H23 E24 J64 (search for similar items in EconPapers)
Date: 2018
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Working Paper: Unemployment and Environmental Regulation in General Equilibrium (2016) Downloads
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